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Critical Topics and Their Significance for the UPSC CSE Examination on February 18, 2025

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How Budget 2025 empowers India’s cities as engines of economic growth?

For Preliminary Examination:  Budget Document, Economic Survey 

For Mains Examination: GS III - Indian Economy

Context:

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, emphasised urban development as one of the six domains for transformative reforms. This renewed focus on urban areas in the budget points to the government’s commitment to empowering cities as a vital component of India’s economic and social development. 

Read about:

Urban Local Bodies (ULB)

Gender Budget 2024-25

Key takeaways:

Urban Challenge Fund and Its Role in City Transformation

• The budget introduced an Urban Challenge Fund, aiming to mobilize ₹1 lakh crore for urban development. This initiative will assess proposals in three categories: cities as economic hubs, innovative urban redevelopment, and water & sanitation projects.
• The fund will cover up to 25% of the cost for bankable projects, provided that at least 50% of the funding comes from alternative sources such as bonds, bank loans, or Public-Private Partnerships (PPPs).
• This initiative is closely aligned with the Smart Cities Mission and AMRUT and seeks to encourage innovative urban development and infrastructure enhancement.

Public-Private Partnerships in Urban Development

• The Urban Challenge Fund also emphasizes collaboration between Urban Local Bodies (ULBs) and private enterprises to implement urban development initiatives. A similar approach was adopted under the Smart Cities Mission, which encouraged private investment in citywide and area-based projects.
• By incorporating private sector involvement, the fund aims to strengthen the financial autonomy of ULBs, enabling them to generate independent revenue sources for urban projects.
• Currently, a large portion of ULB revenue depends on grants from central and state governments, as highlighted by PRS Legislative Research. Many ULBs face governance constraints, such as limited autonomy and incomplete devolution of responsibilities, which restrict their ability to generate independent revenue and often necessitate external financial support for infrastructure projects.

Revenue Sources of Urban Local Bodies (ULBs)

ULBs generate revenue primarily through tax and non-tax sources:

• Tax revenue includes property tax, professional tax, and entertainment tax.

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